Macquarie applauds bank liberalization

CROSS-STRAITTaiwanese banks are currently only allowed to establish representative offices in China, as the two nations lack a supervision 'memorandum of understanding'

By Amber Chung / STAFF REPORTER

Despite an indefinite future, the proposed relaxation of laws governing Taiwanese banks' investment in China that passed preliminary review in the legislature earlier this month was a constructive move toward liberalization, according to a report released by Macquarie Research Equities last week.

"Without access to China or merger and acquisitions (M&A) in the medium term, the banking sector [in Taiwan] is structurally moribund," the report said.

Expanding operations into China would provide a potential catalyst for a re-rating of the nation's banking industry, the report said.

Last week, China announced new rules allowing foreign banks into its long-protected retail banking market to fulfill the nation's WTO commitments.

Foreign competitors are required to incorporate locally with capitalization as high as 1 billion yuan (US$120 million) if they want to provide local-currency and retail banking services to individual Chinese customers.

However, China's regulatory authorities appeared to offer some leeway to financial institutions from Taiwan, Hong Kong and Macao, with exemption from the stringent requirements likely, the new rules suggested.

Prior to the announcement, Taiwan's pan-blue lawmakers pushed through a legal amendment earlier this month, allowing local banks to set up branches and subsidiaries in the Chinese market directly or indirectly via a third country and to invest in Chinese financial institutions.

While the liberalization initiative still has a long way to go and is more politicking than policy-making at present, it is still an important first move -- and that has to be seen as positive, Macquarie Research said.

Under current regulations, Taiwanese banks are only allowed to establish representative offices in China, as the nation does not have a "memorandum of understanding" (MOU) on financial supervision with China.

Up to 84 lawmakers signed up and supported the bill, including Democratic Progressive Party (DPP) Legislators Tsai Chi-chang (蔡其昌), Huang Wei-cher (黃偉哲) and Julian Kuo (郭正亮).

Chinese Nationalist Party (KMT) Legislator Lee Jih-chu (李紀珠), the initiator of the amendment, cited DPP caucus whip Ker Chien-ming (柯建銘) as saying that the governing party did not oppose the relaxation but did not want the initiative implemented before the mayoral elections next month.

Even so, the Cabinet and the pan-green camp, especially the Taiwan Solidarity Union, planned to block the bill.

In this context, Macquarie Research recommended Chinatrust Financial Holding Co (中信金控) with a target price of NT$27.9 (US$0.85) for its overseas business. Sixteen percent of Chinatrust Financial's total revenue comes from the credit card and cash card business segment.

Shares of Chinatrust Financial closed up NT$0.2 to NT$25.4 on Friday on the Taiwan Stock Exchange (TSE).

Political noise surrounding the Koo family has devalued the company's stock, Macquarie Research said. It added that Chinatrust Financial has the best risk/reward ratio of any holding company on the TSE.

Macquarie Research also gave SinoPac Holdings (永豐金控) a target price of NT$18.23 and Fubon Financial Holding Co (富邦金控) a target price of NT$27.65, on speculative interest from their offshore subsidiaries.